DP12986 Optimal Dynamic Matching

Author(s): Mariagiovanna Baccara, SangMok Lee, Leeat Yariv
Publication Date: June 2018
Keyword(s): Dynamic Matching, market design, mechanism design, Organ Donation
JEL(s):
Programme Areas: Labour Economics, Industrial Organization
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=12986

We study a dynamic matching environment where individuals arrive sequentially. There is a tradeoff between waiting for a thicker market, allowing for higher quality matches, and minimizing agents' waiting costs. The optimal mechanism cumulates a stock of incongruent pairs up to a threshold and matches all others in an assortative fashion instantaneously. In discretionary settings, a similar protocol ensues in equilibrium, but expected queues are inefficiently long. We quantify the welfare gain from centralization, which can be substantial, even for low waiting costs. We also evaluate welfare improvements generated by transfer schemes, and alternative priority protocols.